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Which Constituents For iTraxx Crossover?

10 March 2015 by lberuti

Over the last 6 months, the performance of credit indices have been fairly impressive. Roughly speaking, risk premia have tightened by 15% during that period. But that masks a wide disparity in individual performances. As you can see on this grapple where green indicates a positive performance and red a negative one, we have very bright colours! For instance OTE ( Hellenic Telecommunications Organisation SA ) is 228bps wider @ 435bps, ABGSM (Abengoa) is 488bps wider @ 938bps while MESSA ( Metsa Board Oyj ) is 140bps tighter @ 77bps and UNILSUB (Unilabs) is 305bps tighter @ 438bps. That disparity has given headaches to people managing European index compositions. Up to series 22, to be eligible for inclusion in iTraxx Crossover, a company needed to have a risk premium in excess of twice the average risk premium of the non-financial constituents of iTraxx Main, the reference investment grade credit index. But this time around too many names would have been disqualified and finding 75 eligible names would have been a struggle. So it was decided to bend the rule and to lower the criteria from twice to 1.5 time.